What’s been happening?

Pound Sterling – UK Markets 

The British pound was unable to set its next short-term direction on Wednesday as it closed the day virtually unchanged against both the dollar and the euro. While testifying before the UK Parliament's Treasury Select Committee (TSC), Bank of England (BOE) Governor Carney reiterated that higher interest rates would be appropriate if headwinds to the economy were to lift. Touching on the Brexit uncertainty, “There has been a "notable increase" in market expectations of no-deal Brexit in recent months,” Carney noted. “Business uncertainty is as high as it was before March 29 Brexit deadline.” Additionally, the Monetary Policy Committee (MPC) member Saunders argued that crystallising the risk businesses are most worried about on Brexit would be the worst way to resolve the Brexit uncertainty.

Meanwhile, despite the PM candidate Johnson’s remarks about the current Brexit deal being dead, the EU Commission repeated that the EU will not renegotiate the Brexit Withdrawal Agreement while adding that they will work with any UK Prime Minister in "spirit of cooperation."   

US Dollar – US Markets

Following Monday’s rebound, the US Dollar Index, which gauges the dollar’s value against a basket of six major currencies, struggled to continue to push higher amid disappointing macroeconomic data releases and failed to capitalize on surging Treasury bond yields.

The U.S. Census Bureau today reported that durable goods orders in May contracted by 1.3% on a monthly basis in May following April’s 2.8% decline and fell short of the market expectation of -0.1%. Further details of the report revealed that durable goods orders excluding defence fell 0.6%. Other data showed goods trade deficit in May rose to $74.55 billion in May from $70.92 billion in April. Later in the day, San Francisco Federal Reserve Bank President Mary Daly said that she was worried about the direction of inflation and argued that slowing growth and headwinds could strengthen the argument for a rate cut. "If a rate cut is necessary it could help bring the economy back to potential growth, support return of inflation to target," Daly further elaborated.    

Meanwhile, U.S. Treasury Secretary Mnuchin earlier in the day said that the trade deal with China was 90% completed. Furthermore, President Trump told Fox Business Network said that it was possible to reach an agreement on trade with China when he meets his Chinese counterpart Xi at the G20 summit this weekend. Boosted by these remarks, the 10-year T-bond yield rose nearly 3%.

Euro – European Markets

The shared currency closed the day unchanged against both the dollar and the pound sterling on Wednesday amid a lack of significant macroeconomic drivers. European Central Bank Executive Board member Mersch didn’t comment on the policy outlook in his prepared remarks. 

Later in the day, citing two sources familiar with talks, Reuters reported that the ECB was looking to use a loophole in government bond contracts to introduce fresh stimulus. "An obscure clause in government bond contracts may help the European Central Bank clear a key hurdle to launching a fresh stimulus programme by allowing it to own even more government debt," Reuters' Francesco Canepa wrote. 

What’s coming up? 

UK: The GfK will release the Consumer Confidence Index for the UK.

US: The U.S. economic docket will feature the final reading of the first-quarter GDP growth alongside Personal Consumption Expenditures and pending home sales. 

EU: The European Commission will release its latest business and consumer survey, which will include industrial confidence, business climate, economic sentiment, services sentiment, and consumer confidence indexes. Germany’s Destatis will publish its inflation report as well.